| ALLOWANCE FOR CREDIT LOSSES | ALLOWANCE FOR CREDIT LOSSES The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate (“CRE”), 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL. CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business. C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company. The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio. Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchased money mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt. Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values. Construction loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed. Other loans, which includes the Company’s largest lending relationship, has unique risk attributes considered inconsistent with our current underwriting standards. The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future. These inconsistencies may include, but are not limited to i) transaction and/or relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets, and v) indirect liabilities of certain guarantees resulting from the nonpayment of financial obligations. Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018. Current Expected Credit Losses (“CECL”) Model The CECL model is based on our best estimate of facts known with the most current information. Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability. Credit Quality Indicators: The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status. The Company has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: 1) credit quality of the loan portfolio, 2) compliance with the loan policy, 3) adequacy of documentation in credit files and 4) validity of risk ratings. Since 2020 and continuing through 2024, the Company used a five step approach for loan review in the following categories: • Individual reviews of the top twenty large loan relationships (“LLRs”), which are defined as any individual commercial loan or aggregate commercial relationship totaling $2.0 million or more; • A sampling of small LLRs, which are defined as individual commercial loans or relationships with aggregate exposure of $2.0 million or more but not included in the top twenty LLRs; • A sampling review of Executive Loan Committee modifications, including new and existing loans to provide perspective on the appropriateness of the modification in relation to established policies and procedures; • A sampling review of non-organic commercial loans and those commercial loans approved outside of the Executive Loan Committee; and • Focus reviews of various segments to evaluate emerging risk rather than individual loan risk. Focus reviews are performed annually on a rotational basis. The Company’s internally assigned grades are as follows: Pass – The Company uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality. Special Mentio n – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the periods presented: June 30, 2024 Risk Rating (Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans Commercial Real Estate Pass $ 80,206 $ 280,400 $ 431,656 $ 239,903 $ 134,333 $ 584,989 $ 43,337 $ 1,794,824 Special Mention — — 4,516 — — 66 — 4,582 Substandard — — 1,380 — — 611 — 1,991 Total Commercial Real Estate $ 80,206 $ 280,400 $ 437,552 $ 239,903 $ 134,333 $ 585,666 $ 43,337 $ 1,801,397 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial and Industrial Pass $ 60 $ 24,334 $ 15,546 $ 28,789 $ 22,057 $ 126,864 $ 16,946 $ 234,596 Special Mention — — — — 2,827 — — 2,827 Substandard — — 772 1,065 — — 1,351 3,188 Total Commercial and Industrial $ 60 $ 24,334 $ 16,318 $ 29,854 $ 24,884 $ 126,864 $ 18,297 $ 240,611 YTD Gross Charge-offs $ — $ — $ — $ — $ 18 $ 1 $ — $ 19 Residential Mortgages Pass $ 17,841 $ 69,217 $ 256,092 $ 188,444 $ 72,046 $ 130,898 $ 47,320 $ 781,858 Special Mention — — — — — 93 — 93 Substandard — — — — — 1,619 333 1,952 Total Residential Mortgages $ 17,841 $ 69,217 $ 256,092 $ 188,444 $ 72,046 $ 132,610 $ 47,653 $ 783,903 YTD Gross Charge-offs $ — $ 1 $ — $ — $ — $ 26 $ — $ 27 Other Consumer Pass $ 15,443 $ 7,149 $ 3,376 $ 1,525 $ 3,163 $ 164 $ 434 $ 31,254 Special Mention — — — — — — — — Substandard — 9 — 21 — — — 30 Total Other Consumer $ 15,443 $ 7,158 $ 3,376 $ 1,546 $ 3,163 $ 164 $ 434 $ 31,284 YTD Gross Charge-offs $ 97 $ 29 $ 590 $ 220 $ 16 $ 16 $ — $ 968 Construction Pass $ 22,813 $ 166,405 $ 146,414 $ 29,310 $ 9,074 $ 11,036 $ 7,394 $ 392,446 Special Mention — — — — — 54 — 54 Substandard — — 292 — 2,134 — — 2,426 Total Construction $ 22,813 $ 166,405 $ 146,706 $ 29,310 $ 11,208 $ 11,090 $ 7,394 $ 394,926 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ 156 $ — $ 156 Other Pass $ — $ — $ — $ — $ — $ 3,260 $ — $ 3,260 Special Mention — — — — — — — — Substandard 294,140 — — — — — — 294,140 Total Other Loans $ 294,140 $ — $ — $ — $ — $ 3,260 $ — $ 297,400 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Total Portfolio Loans Pass $ 136,363 $ 547,505 $ 853,084 $ 487,971 $ 240,673 $ 857,211 $ 115,431 $ 3,238,238 Special Mention — — 4,516 — 2,827 213 — 7,556 Substandard 294,140 9 2,444 1,086 2,134 2,230 1,684 303,727 Total Portfolio Loans $ 430,503 $ 547,514 $ 860,044 $ 489,057 $ 245,634 $ 859,654 $ 117,115 $ 3,549,521 Current YTD Period: YTD Gross Charge-offs $ 97 $ 30 $ 590 $ 220 $ 34 $ 199 $ — $ 1,170 December 31, 2023 Risk Rating (Dollars in Thousands) 2023 2022 2021 2020 2019 2018 and Prior Revolving Total Portfolio Loans Commercial Real Estate Pass $ 259,171 $ 434,639 $ 173,667 $ 142,494 $ 124,176 $ 503,965 $ 30,917 $ 1,669,029 Special Mention — — 206 — — 72 — 278 Substandard — — — 101 1,223 — 1,324 Total Commercial Real Estate $ 259,171 $ 434,639 $ 173,873 $ 142,494 $ 124,277 $ 505,260 $ 30,917 $ 1,670,631 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial and Industrial Pass $ 24,863 $ 18,061 $ 37,566 $ 24,566 $ 2,636 $ 137,395 $ 23,535 $ 268,622 Special Mention — — — 2,837 — — — 2,837 Substandard — — — 18 14 1 19 52 Total Commercial and Industrial $ 24,863 $ 18,061 $ 37,566 $ 27,421 $ 2,650 $ 137,396 $ 23,554 $ 271,511 YTD Gross Charge-offs $ — $ — $ 45 $ — $ 16 $ 2 $ — $ 63 Residential Mortgages Pass $ 79,247 $ 250,603 $ 194,014 $ 77,805 $ 43,633 $ 96,238 $ 42,550 $ 784,090 Special Mention — — — — — 525 — 525 Substandard — — 1,142 — 860 1,070 242 3,314 Total Residential Mortgages $ 79,247 $ 250,603 $ 195,156 $ 77,805 $ 44,493 $ 97,833 $ 42,792 $ 787,929 YTD Gross Charge-offs $ — $ — $ 136 $ — $ — $ 67 $ — $ 203 Other Consumer Pass $ 22,809 $ 4,494 $ 2,396 $ 3,936 $ 26 $ 187 $ 354 $ 34,202 Special Mention — — — — — — — — Substandard 14 6 55 — — — — 75 Total Other Consumer $ 22,823 $ 4,500 $ 2,451 $ 3,936 $ 26 $ 187 $ 354 $ 34,277 YTD Gross Charge-offs $ 232 $ 1,451 $ 744 $ 83 $ 126 $ 29 $ — $ 2,665 Construction Pass $ 118,120 $ 162,794 $ 122,087 $ 10,837 $ 5,155 $ 6,280 $ 8,048 $ 433,321 Special Mention — — — — — 60 — 60 Substandard — 64 — 2,090 — 814 — 2,968 Total Construction $ 118,120 $ 162,858 $ 122,087 $ 12,927 $ 5,155 $ 7,154 $ 8,048 $ 436,349 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ 42 $ — $ 42 Other Pass $ — $ — $ — $ — $ — $ 3,300 $ — $ 3,300 Special Mention — — — — — — — — Substandard — — — — — 301,913 — 301,913 Total Other Loans $ — $ — $ — $ — $ — $ 305,213 $ — $ 305,213 YTD Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Total Portfolio Loans Pass $ 504,210 $ 870,591 $ 529,730 $ 259,638 $ 175,626 $ 747,365 $ 105,404 $ 3,192,564 Special Mention — — 206 2,837 — 657 — 3,700 Substandard 14 70 1,197 2,108 975 305,021 261 309,646 Total Portfolio Loans $ 504,224 $ 870,661 $ 531,133 $ 264,583 $ 176,601 $ 1,053,043 $ 105,665 $ 3,505,910 Current YTD Period: YTD Gross Charge-offs $ 232 $ 1,451 $ 925 $ 83 $ 142 $ 140 $ — $ 2,973 The following table presents portfolio loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the periods presented: June 30, 2024 (Dollars in Thousands) 2024 2023 2022 2021 2020 2019 and Prior Revolving Total Portfolio Loans Commercial Real Estate Performing $ 80,206 $ 280,400 $ 437,552 $ 239,903 $ 134,333 $ 585,055 $ 43,337 $ 1,800,786 Nonperforming — — — — — 611 — 611 Total Commercial Real Estate $ 80,206 $ 280,400 $ 437,552 $ 239,903 $ 134,333 $ 585,666 $ 43,337 $ 1,801,397 Commercial and Industrial Performing $ 60 $ 24,334 $ 16,318 $ 28,789 $ 24,884 $ 126,864 $ 18,278 $ 239,527 Nonperforming — — — 1,065 — — 19 1,084 Total Commercial and Industrial $ 60 $ 24,334 $ 16,318 $ 29,854 $ 24,884 $ 126,864 $ 18,297 $ 240,611 Residential Mortgages Performing $ 17,841 $ 69,217 $ 256,092 $ 188,444 $ 72,046 $ 130,991 $ 47,321 $ 781,952 Nonperforming — — — — — 1,619 332 1,951 Total Residential Mortgages $ 17,841 $ 69,217 $ 256,092 $ 188,444 $ 72,046 $ 132,610 $ 47,653 $ 783,903 Other Consumer Performing $ 15,443 $ 7,149 $ 3,376 $ 1,525 $ 3,163 $ 164 $ 434 $ 31,254 Nonperforming — 9 — 21 — — — 30 Total Other Consumer $ 15,443 $ 7,158 $ 3,376 $ 1,546 $ 3,163 $ 164 $ 434 $ 31,284 Construction Performing $ 22,813 $ 166,405 $ 146,414 $ 29,310 $ 9,074 $ 11,090 $ 7,394 $ 392,500 Nonperforming — — 292 — 2,134 — — 2,426 Total Construction $ 22,813 $ 166,405 $ 146,706 $ 29,310 $ 11,208 $ 11,090 $ 7,394 $ 394,926 Other Performing $ — $ — $ — $ — $ — $ 3,260 $ — $ 3,260 Nonperforming 294,140 — — — — — — 294,140 Total Other Loans $ 294,140 $ — $ — $ — $ — $ 3,260 $ — $ 297,400 Total Portfolio Loans Performing $ 136,363 $ 547,505 $ 859,752 $ 487,971 $ 243,500 $ 857,424 $ 116,764 $ 3,249,279 Nonperforming 294,140 9 292 1,086 2,134 2,230 351 300,242 Total Portfolio Loans $ 430,503 $ 547,514 $ 860,044 $ 489,057 $ 245,634 $ 859,654 $ 117,115 $ 3,549,521 December 31, 2023 (Dollars in Thousands) 2023 2022 2021 2020 2019 2018 and Prior Revolving Total Portfolio Loans Commercial Real Estate Performing $ 259,171 $ 434,639 $ 173,873 $ 142,494 $ 124,176 $ 504,037 $ 30,917 $ 1,669,307 Nonperforming — — — — 101 1,223 — 1,324 Total Commercial Real Estate $ 259,171 $ 434,639 $ 173,873 $ 142,494 $ 124,277 $ 505,260 $ 30,917 $ 1,670,631 Commercial and Industrial Performing $ 24,863 $ 18,061 $ 37,566 $ 27,403 $ 2,636 $ 137,395 $ 23,535 $ 271,459 Nonperforming — — — 18 14 1 19 52 Total Commercial and Industrial $ 24,863 $ 18,061 $ 37,566 $ 27,421 $ 2,650 $ 137,396 $ 23,554 $ 271,511 Residential Mortgages Performing $ 79,247 $ 250,603 $ 194,014 $ 77,805 $ 43,633 $ 96,794 $ 42,550 $ 784,646 Nonperforming — — 1,142 — 860 1,039 242 3,283 Total Residential Mortgages $ 79,247 $ 250,603 $ 195,156 $ 77,805 $ 44,493 $ 97,833 $ 42,792 $ 787,929 Other Consumer Performing $ 22,809 $ 4,494 $ 2,412 $ 3,936 $ 26 $ 187 $ 354 $ 34,218 Nonperforming 14 6 39 — — — — 59 Total Other Consumer $ 22,823 $ 4,500 $ 2,451 $ 3,936 $ 26 $ 187 $ 354 $ 34,277 Construction Performing $ 118,120 $ 162,858 $ 122,087 $ 10,837 $ 5,155 $ 6,340 $ 8,048 $ 433,445 Nonperforming — — — 2,090 — 814 — 2,904 Total Construction $ 118,120 $ 162,858 $ 122,087 $ 12,927 $ 5,155 $ 7,154 $ 8,048 $ 436,349 Other Performing $ — $ — $ — $ — $ — $ 3,300 $ — $ 3,300 Nonperforming — — — — 301,913 — 301,913 Total Other Loans $ — $ — $ — $ — $ — $ 305,213 $ — $ 305,213 Total Portfolio Loans Performing $ 504,210 $ 870,655 $ 529,952 $ 262,475 $ 175,626 $ 748,053 $ 105,404 $ 3,196,375 Nonperforming 14 6 1,181 2,108 975 304,990 261 309,535 Total Portfolio Loans $ 504,224 $ 870,661 $ 531,133 $ 264,583 $ 176,601 $ 1,053,043 $ 105,665 $ 3,505,910 The following tables include an aging analysis of the recorded investment of past due portfolio loans as the periods presented: June 30, 2024 (Dollars in Thousands) Current Loans Loans Total Nonaccrual Total Portfolio Commercial Real Estate $ 1,800,335 $ 411 $ 40 $ 451 $ 611 $ 1,801,397 Commercial and Industrial 239,464 63 — 63 1,084 240,611 Residential Mortgages 781,065 679 208 887 1,951 783,903 Other Consumer 30,912 188 154 342 30 31,284 Construction 392,500 — — — 2,426 394,926 Other 3,260 — — — 294,140 297,400 Total $ 3,247,536 $ 1,341 $ 402 $ 1,743 $ 300,242 $ 3,549,521 December 31, 2023 (Dollars in Thousands) Current Loans Loans Total Nonaccrual Total Portfolio Commercial Real Estate $ 1,668,988 $ 125 $ 194 $ 319 $ 1,324 $ 1,670,631 Commercial and Industrial 271,420 5 34 39 52 271,511 Residential Mortgages 782,765 1,846 35 1,881 3,283 787,929 Other Consumer 33,813 247 158 405 59 34,277 Construction 430,057 3,388 — 3,388 2,904 436,349 Other 3,300 — — — 301,913 305,213 Total $ 3,190,343 $ 5,611 $ 421 $ 6,032 $ 309,535 $ 3,505,910 The Company had no loans past due 90 days or more and still accruing at June 30, 2024 and December 31, 2023. Loans past due 90 days are automatically transferred to nonaccrual status. Loans past due 30 to 89 days and still accruing decreased $4.3 million to $1.7 million at June 30, 2024 compared to December 31, 2023. Construction past due loans decreased $3.4 million partly due to a delinquent construction loan totaling $1.5 million that went permanent to a residential mortgage and is now current in the second quarter of 2024. In addition, a second construction loan in the amount of $1.1 million paid off in the first quarter of 2024. Residential mortgages decreased $1.0 million during the second quarter of 2024. The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented: June 30, 2024 (Dollars in Thousands) Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Past Due Commercial Real Estate $ — $ 611 $ 611 $ — Commercial and Industrial — 1,084 1,084 — Residential Mortgages — 1,951 1,951 — Other Consumer — 30 30 — Construction 2,089 337 2,426 — Other — 294,140 294,140 — Total $ 2,089 $ 298,153 $ 300,242 $ — December 31, 2023 (Dollars in Thousands) Nonaccrual without an Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Past Due Commercial Real Estate $ 453 $ 871 $ 1,324 $ — Commercial and Industrial — 52 52 — Residential Mortgages 1,142 2,141 3,283 — Other Consumer — 59 59 — Construction 2,898 6 2,904 — Other — 301,913 301,913 — Total $ 4,493 $ 305,042 $ 309,535 $ — Nonperforming loans remained significantly elevated at June 30, 2024 and December 31, 2023 due to the aggregate nonperforming loan balance that was reduced from $301.9 million as of March 31, 2024 to $294.1 million as of June 30, 2024 associated with the Bank’s largest lending relationship, that was placed on nonaccrual status during the second quarter of 2023. During the second quarter of 2024, the Bank received payment of $7.8 million, which reduced the Bank’s amortized cost associated with these loans, pursuant to the pathway of curtailment and payoff of the outstanding nonperforming loan agreed between the relevant borrowers and the Bank. There were no nonaccrual or past due loans related to loans held-for-sale at June 30, 2024 or December 31, 2023. A loan is considered nonperforming when we transfer the interest methodology from accrual to nonaccrual. Nonaccrual status recognizes that the collection in full of both principal and interest is unlikely. Without applying additional scrutiny at a granular level, management believes delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest. Accordingly, management automatically transfers loans to nonaccrual status if they are 90 or more days’ delinquent. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. We may also elect to retain a loan that is 90 or more days’ delinquent in accrual status if we believe the loan is well secured and in the process of collection. Nonaccrual loans, and loans that have been characterized as Restructured Loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $1.0 million or greater and/or based on management’s discretion; unless we elect to maintain the loan in the general pool. During the three and six months ended June 30, 2024 and June 30, 2023, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans. The following table presents the amortized cost basis of individually evaluated loans as of the periods presented. Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as provision for credit loss on loans in the period of change. June 30, 2024 December 31, 2023 (Dollars in Thousands) Fair Value - Real Estate Discounted Cash Flow Total Fair Value - Real Estate Discounted Cash Flow Total Commercial Real Estate $ — $ — $ — $ 453 $ — $ 453 Commercial and Industrial 1,065 — 1,065 — — — Residential Mortgages — — — 1,142 — 1,142 Other Consumer — — — — — — Construction 2,089 — 2,089 2,898 — 2,898 Other — 294,140 294,140 — 301,913 301,913 Total $ 3,154 $ 294,140 $ 297,294 $ 4,493 $ 301,913 $ 306,406 The following tables present activity in the ACL for the periods presented: Three Months Ended June 30, 2024 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans Allowance for Credit Losses on Loans: Balance at Beginning of Period $ 19,162 $ 3,061 $ 11,038 $ 783 $ 8,139 $ 54,353 $ 96,536 Provision (Recovery) for Credit Losses on Loans 655 133 (312) 336 1,078 (1,399) 491 Charge-offs — (1) (4) (488) — — (493) Recoveries — 1 22 129 — — 152 Net Recoveries/(Charge-offs) — — 18 (359) — — (341) Balance at End of Period $ 19,817 $ 3,194 $ 10,744 $ 760 $ 9,217 $ 52,954 $ 96,686 Six Months Ended June 30, 2024 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans Allowance for Credit Losses on Loans: Balance at Beginning of Period $ 19,873 $ 3,286 $ 10,879 $ 868 $ 7,792 $ 54,354 $ 97,052 (Recovery) Provision for Credit Losses on Loans (56) (75) (132) 589 1,581 (1,400) 507 Charge-offs — (19) (27) (968) (156) — (1,170) Recoveries — 2 24 271 — — 297 Net Charge-offs — (17) (3) (697) (156) — (873) Balance at End of Period $ 19,817 $ 3,194 $ 10,744 $ 760 $ 9,217 $ 52,954 $ 96,686 Three Months Ended June 30, 2023 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans Allowance for Credit Losses on Loans: Balance at Beginning of Period $ 18,595 $ 3,531 $ 10,419 $ 1,189 $ 7,506 $ 53,454 $ 94,694 Provision (Recovery) for Credit Losses on Loans 549 (243) 33 401 (861) 206 85 Charge-offs — — (67) (651) (42) — (760) Recoveries — 5 1 119 — — 125 Net Recoveries / (Charge-offs) — 5 (66) (532) (42) — (635) Balance at End of Period $ 19,144 $ 3,293 $ 10,386 $ 1,058 $ 6,603 $ 53,660 $ 94,144 Six Months Ended June 30, 2023 (Dollars in Thousands) Commercial Real Estate Commercial and Industrial Residential Mortgage Other Consumer Construction Other Total Loans Allowance for Credit Losses on Loans: Balance at Beginning of Period $ 17,992 $ 3,980 $ 8,891 $ 1,329 $ 6,942 $ 54,718 $ 93,852 Provision (Recovery) for Credit Losses on Loans 1,152 (691) 1,563 831 (297) (1,058) 1,500 Charge-offs — (1) (70) (1,308) (42) — (1,421) Recoveries — 5 2 206 — — 213 Net Recoveries / (Charge-offs) — 4 (68) (1,102) (42) — (1,208) Balance at End of Period $ 19,144 $ 3,293 $ 10,386 $ 1,058 $ 6,603 $ 53,660 $ 94,144 |
